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Average UK inheritance tax bill is over £170,000

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The average inheritance tax (IHT) bill in the UK has reached more than £170,000, an increase of almost £5,000 or three per cent, according to analysis by Prudential.

The latest publicly available data on tax receipts, which are from the 2012-2013 tax year, saw IHT was paid on 17,900 estates with a total bill of £3.05bn, a 15 per cent increase on the £2.65bn total paid in the previous tax year.

The figures do not, however, suggest an increasing proportion of estates are becoming liable for IHT .

HMRC reviewed nearly 280,000 estates in the 2012-2013 tax year. IHT was paid by six per cent of estates, a figure that remained relatively flat over the course of five years but is much lower than in 2007-2008 when over nine per cent of estates were liable.

Prudential’s analysis also confirmed London and the South East remain the UK’s top IHT hotspots. Between them they accounted for half of all IHT payments in the 2012-2013 tax year. Of all the estates above the £325,000 threshold, and therefore liable for IHT, 42 per cent were from London and the South East.

The average IHT bill was also higher in London than anywhere else in the country, with the average amount paid per liable estate totalling almost £236,000 – 38 per cent higher than the national average.

Prudential analysis also revealed some significant fluctuations across the UK in the average increases in IHT bills paid by eligible estates.

Between April 2010 and April 2013 the average bill in Northern Ireland grew by a quarter (26 per cent) and in the North East of England by just over 10 per cent. By contrast, in the same time period the average bills in Scotland fell almost nine per cent and those in Wales five per cent.

In a further indication of the skewed distribution across the country of IHT, there were 200 estates liable for the tax in Northern Ireland while four individual counties in South East England each saw more than double that figure – Surrey (970), Hampshire (620), Kent (560) and West Sussex (510).

In the 2015 Summer Budget, Chancellor Osborne announced that as of April 2017, individuals will be entitled to a family home allowance in addition to the existing £325,000 IHT allowance. The family home allowance will be phased in by the 2020-21 tax year, and be worth up to £1m for a married couple or civil partnership.

As a result of the pension freedoms, individuals may pass on unused defined contribution pensions to a nominated beneficiary when they die without paying the 55 per cent tax charge previously applied. If the individual dies before the age of 75, they will be able to give their remaining defined contribution pension to anyone as a lump sum completely tax free, if it is in a drawdown account or unvested.

Les Cameron, tax specialist at Prudential, said: “As the amount of IHT paid increases, so does the value of careful tax planning for anyone looking to cascade as much of their wealth to their families as possible.

“Planning for IHT is most valuable when done early, and has become increasingly important with the additional options and complexities brought about by the new rules allowing individuals to pass on pension savings to family members.

“With all this in mind, it is almost never too early for many people to discuss future financial plans for them and their families with a professional financial adviser.”

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